Modelling Australia's private health insurance industry

Abstract

This paper outlines a model of the Australian private health insurance industry embedded within Australia’s broader health services structure. The model is used to examine issues such as adverse selection and risk differentiation, and policies such as Lifetime Health Cover, the Medicare Levy Surcharge and the 30% rebate. This analysis gives rise to conclusions regarding future policy development. First, private health insurance cannot be considered outside the broader health framework. Second, Medicare quality may best be improved through changes in private health insurance regulation. Third, a convergence of private health insurance coverage is not necessarily an indication of stability. Finally, risk-differentiation by insurers is unlikely to be successful in Australia’s regulatory environment. The strength of the model revolves around the interaction of differing risk attitude and differing risk type.